The basic idea of the Founding Fathers was to get government as close to the people as possible. In other words, a small federal government, with strong local and state governments. Thomas Jefferson said, â€œWhen all government shall be drawn to Washington as the center of all power, it willâ€¦ become as oppressive as the government from which we separated [ourselves, the government of England].â€

Do you think that a bloated federal bureaucracy might be at the root of the problems we are facing today in our American Republic? Our nationâ€™s Founders never dreamed that the federal government would become the octopus that it is, with its tentacles reaching into every facet of our lives. Is there a solution? Yes, and itâ€™s already happening now!

The stock market rises and then crashes. Housing prices soar and then plummet. The Federal Reserve causes these booms and busts by constantly expanding and contracting the supply of money and credit.

Credit expansion by the Federal Reserve increases the demand for producer assets and investment instruments. This causes bubbles in things like stocks and housing. When the Fed then contracts credit to avoid systemic price inflation the asset bubbles burst.

This is the history of the Federal Reserve — booms and busts, mixed with episodes of economic stagnation and high inflation like the 1970s.

With news this week that Congress is poised to consider a new stimulus package, I am forced to again ask a question that seems silly in Washington:Â How will we pay for this?

While a few Members of Congress have raised the issue, it certainly was not the primary concern of the House Budget Committee when they interviewed Ben Bernanke on Monday.Â And, when they did direct this question to the Chairman of the Federal Reserve, his answer was the standard rhetoric about how Congress needed to make tough choices.Â Needless to say, not many specifics were discussed.

It has not been a good week for the Republic.Â It took quite a bit of trampling of the Constitution, but the bailout bill passed, as I suspected it would.

The bailout failed the first time it was brought to the House.Â Undaunted, the Senate pressed on by attaching the bailout as an amendment to another House passed bill that was pending in the Senate.Â The new bailout version had new taxes, so according to the Constitution it should not have originated in the Senate.

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

The financial panic that has engulfed the planet is considered by politicians, bureaucrats, journalists and mainstream economists to be a problem of regulation. I find myself in the uncomfortable position of having to agree with this gang of opinion makers, but it is not a problem of insufficient regulation, inadequate regulation, unenforced regulation, out-dated regulation, or anything of the kind.

The problem is with regulation itself. With regard to financial markets, government regulates everything. There is the Federal Reserve that regulates the money supply, interest rates and everything else. There is the Treasury with its array of regulatory powers.

The Latin term â€œfiatâ€ roughly translates to â€œthere shall beâ€. When we refer to fiat money, we are referring to money that exists because the government declares it into existence. It is not based on production or earnings, and not backed by any commodity. It is solely based on trusting the government.

Fiat money is exchanged in the economy as long as there is faith in the government that issues it.

Oil prices are on the minds of many Americans as gas hits $4 a gallon, and continues to surge.Â How high can prices go?Â How can we solve these problems?Â What, or who, is to blame?

Part of the answer lies in understanding bubbles and monetary inflation, but especially the Federal Reserve System.Â The Federal Reserve is charged with controlling inflation through interest rate manipulation, however, many fail to realize that creating money, and therefore inflation, is really its only tool.Â When the Federal Reserve inflates the dollar as drastically as it has in the past few decades, the first users of the newly created money go in search of investments for their dollars.Â They must invest this money quickly and aggressively before it loses value.Â